Derivatives' globalization gathers pace

Overseas investors to benefit from product portfolio expansion of futures

China will sustain efforts to internationalize its derivatives market, which helps in supply chain stability and high-quality economic growth, officials and industry experts said at an industry event on Thursday.

The country will continue to expand the futures product portfolio that foreign investors can access, said Fang Xinghai, vice-chairman of the China Securities Regulatory Commission, the top securities watchdog, during a keynote speech at the 20th Shanghai Derivatives Market Forum, which will conclude on Friday.

This will help overseas institutions better participate in the trading of primary products, further facilitating their pricing and providing more accurate price references to enterprises, Fang said.

A total of 23 designated futures products are now open to overseas investors, with 96 percent of these designed based on primary goods. Up to 39 commodities futures and options products have been made available to qualified foreign institutional investors and renminbi-qualified foreign institutional investors, and 70 percent of these products are based on primary commodities, he said.

Prices have remained stable in China so far this year, thanks to the recovery in economic growth and market expectations. But the rising risks from global deflation, volatility in the international financial market and continued geopolitical tensions have posed challenges for the global industrial chain, Fang said.

Primary products, which are at the forefront of industrial and supply chains, serve as the cornerstone of the economy. Therefore, their stable supply and prices are highly important to economic stability and national security. The forward prices, based on different maturity dates, can make it easier for companies to arrange their production schedules and sale of primary goods, he said.

He Qingwen, chairman of the China Financial Futures Exchange, said at the forum that the continued opening-up of financial futures can better meet the risk management demand of overseas investors, which has come under the spotlight in recent years due to rising volatility in the stock and bond markets.

The Bond Connect program which started in July 2017, for example, can help overseas institutions improve their capabilities in pricing and spot goods management. While institutions can control risks more effectively and enhance their business connectivity, renminbi assets will become more attractive globally under the mechanism, he said.

Internationalization is also one of the seven major measures that the Shanghai Futures Exchange will adopt in the next few years, according to the exchange's strategic plan for 2023 to 2025 that was released at the forum on Thursday.

International products such as crude oil, copper and rubber should be more influential and find greater traction in the global market by 2025, which will help better serve the real economy, according to the plan.

Meanwhile, the exchange will roll out more international products, advance the internationalization of existing products and strengthen cross-border cooperation to attract more investors from across the world, the plan has outlined.

Ever since the SHFE launched yuan-denominated crude oil futures in March 2018, the first international product providing direct access to international investors, it has rolled out five similar products over time. A further 11 futures and options products have been made available to QFIIs.

"Promoting systematic opening-up is crucial as China aims to improve the core competitiveness and international influence of its futures market. Efforts should be made to strengthen the exchange and connection with global industrial chains so that the Chinese futures market will be more attractive at the global level," said SHFE Chairman Tian Xiangyang.